economics essay globalisation

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Impact of Globalisation (Revision Essay Plan)

Last updated 11 Jan 2022

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Here is a suggested answer to a question on the impact of globalisation on developed and developing countries.

Introductory Context

An estimated 9 percent of the global population still lives below the international poverty line of US$1.90 PPP a day.Success in reducing poverty in East Asia is clear with 7 percent of the population in the region living below the US$3.20 PPP line and 25 percent living below the US$5.50 PPP poverty line in 2018. However, almost 70 percent of Sub-Saharan Africa’s population lives on less than US$3.20 per day. Progress in cutting extreme poverty has been halted by the pandemic. The World Bank estimated that the pandemic pushed between 119 and 124 million people into extreme poverty around the globe in 2020. Many developing countries have limited resilience to the impact of economic shocks and threats from climate change.”.

Source: Adapted from the World Bank Poverty Report, 2021

To what extent have the economic benefits of globalisation favoured developed over developing countries? (25 marks)

KAA Point 1

Globalisation involves deeper integration between countries through networks of trade, capital flows, ideas, technologies and movement of people. One argument that globalisation has favoured high-income countries lies in the growing dominance of TNCs from advanced nations. TNCs base their manufacturing, assembly, research and retail operations across several countries, and many have become synonymous with globalisation namely Nike, Apple, Amazon, Google (Alphabet) and Samsung. Some have annual revenues many times higher than the GDP of smaller low-income countries and there has been fierce criticism of numerous TNCs for following tax avoidance strategies such as transfer pricing. This has reduced tax revenues for governments in developing nations which then hampers their ability to use fiscal policy to fund public services such as education and basic health care. The effect is to limit progress in reducing extreme poverty and improving human development outcomes.

Evaluation Point 1

A counter argument is that globalisation is associated with a steady reduction in import tariffs around the world which has then improved access to high-income markets for businesses from emerging countries. Many nations in east Asia have achieved reductions in extreme poverty driven by export-led growth. The extract says that only 7 percent of this region’s population now live below the US$3.20 PPP poverty line and continued high growth – as economies recover from the effects of the pandemic - will lead to improvements in per capita incomes and living standards. Indeed, sixty percent of the value of world GDP now comes from emerging market and developing economies and several countries have their own TNCs operating on a global scale. The recent success of countries such as South Korea, India and Vietnam is testimony to the opportunities that globalisation has offered developing nations who have developed competitive advantage across a range of industries.

KAA Point 2

A second argument supporting the question is that nations succeeding in a globalizing world have diversified economies, a workforce with flexible skills and governments with fiscal resources to overcome external shocks such as the pandemic. In contrast, poorer low-income countries rely heavily on the production and export of primary commodities or incomes from tourism, both of which have been hit by the global recession in 2020-21. Many poorer nations also haveinadequate infrastructure which increases the costs of trade and their direct tax revenues as a share of GDP are low because of sizeable informal economies and persistently low per capita incomes. This means that national governments rely heavily on external debt, and many have low currency reserves. They are therefore more exposed to economic, financial and public health shocks. This is evidenced by the differences in vaccination rates between rich and low-income countries. As of January 2022, only 9% of people in low-income countries have received at least one dose and per capita incomes may take years to reach pre-2020 levels.

Evaluation Point 2

In evaluation, the globalisation process has been a catalyst for economic reforms in low and middle-income countries. Consider the example of Vietnam which has transitioned to a socialist oriented market economy and successfully attracted inward FDI from companies such as LG and Samsung. FDIhas flowed in helped by low unit labour costs costs, improving infrastructure and human capital and a deregulated business environment whilst the Vietnamesegovernment has moved to a managed floating exchange rateto help reduce some of the risks from regional and global economic shocks. Vietnam is a good example of a country that has successfully progressed from a low income to a low-middle income nation over the last two decades. The valueof their external trade accounts for roughly 180% of national output, more than any other country at its level of per-person GDP. And their educational scores on standardized tests are on a par with Germany and Austria.

Final Reasoned Comment

Overall, it is hard to reach a firm view on this question because globalisation as a process is uneven and not inevitable. Before and during the pandemic, there was evidence of a switch towards “regionalisation” rather than full-throttled globalisation. For example, most sub-Saharan African countries have joined the African Continental Free Trade Area which seeks to boost intra-regional trade and investment and encourage economies of scale among African businesses so that they can better compete against the dominance of Western TNCs. Developing nations often struggle to compete with developed countries, therefore it is argued free trade benefits high-income economies more. Gains from globalisation will never be equitably distributed.And this sense of deepening inequality and opportunity risks a further shift to tariff and non-tariff barriers to trade and moves towards economic nationalism.

• Globalisation
• Deglobalisation
• Hyper-globalisation
• Transnational Businesses
• Developing countries

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Concept and History of the Economic Globalization Essay

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Globalization is the interconnection that has been experienced in the world through the improvement of communication, trade, and transportation. The aim of globalization is to enhance free movement of goods and services through international trade.

It also increases wealth in the process of distribution of goods and services. Regional economies and many cultures have been incorporated through free flow of information, easy transportation, and trade. There are many types of globalization, including economic globalization, technological globalization and cultural globalization.

However, the focus here is on the aspects of economic globalization. Economic globalization involves a global system that allows movement of goods, capital and resources; for example, the European Union. Economic globalization has improved interdependence of different countries across the world because of global trade. However, striving for better economies has affected different cultures as they tend to emulate countries that have successfully developed their economic systems.

Economic globalization has led to the interdependence of economies in the whole world due to the trades carried out across many borders. This has led to continuing expansion of the global market. Development of science and technologies are a driving force to economic globalization. These technologies have made transport and communication easy. The cost of shipping and airfreight has reduced to allow international trade.

Multinational Corporations have increased in number and they have planned production and distribution of resources and thus, have helped in profit maximization. As they are increasing all over the world, they are reforming the macroeconomics mechanisms of the process of the global economies.

Due to the high income, many industries are restructuring and upgrading. Many developed countries have entered into the developing countries to do business since there is no competition as compared to theirs, thus leading to economic globalization. Domestic and multinational organisations are striving to improve their image in the global market and many have turned to mergers and acquisitions (Joshi, 2009).

Similarly, economic globalization has brought in economic benefits because there is stiff competition, which has led to the decrease of prices and variety high quality goods. Production efficiency has also been improved as the domestic firms try to compete with the foreign competitors. Provision of financing has helped poor countries acquire capital for development.

There are many opportunities for finance all over the world. Before globalization, capitalists and companies could only get money from investors in their local countries, but as the economies are integrated, there are many sources of finance.

Developers in any country can get investors from another country. United States, for example, can give funds to countries such as Canada or in Asia. Not only the developed countries can have access to fund, but also the developing countries from Africa can also access funds from many international sources.

According to Bordo (2005), many countries have joined the world trade organization. For example, China and U.S signed an agreement to access the WTO. Through the signing of this agreement, it is clear that China is ready to transform its economic system and join other countries in the progression of economic globalization.

The US will also benefit because it will boost its exports to China, hence generating more jobs. China will also enhance its economic expansion on the US market share. Economic globalization has also decreased poverty in China from 20 to 15 percent.

Although globalization has changed the whole world in economical, social and political aspect, many people are losing their cultures. Free flow of information, transportation and communication has turned the whole world into a global village and thus, reduction in costs has change people’s tastes and preferences in the society and this has led to the negative effect of cultural values. Before the era of globalization, culture was well defined and the issue of loss of identity did not disturb people since they never knew that it would one day be an issue.

Later, the process of globalization busted the culture identities. Some of the countries like the United States are not affected by lose of culture identity since they are okay with their cultures exported around the globe and thus only the weaker cultures in underdeveloped countries are being affected. Waters (2001) concurs that culture identities have been lost and people and the specificities that make a society unique such as food, language and dressing have been changed completely.

They have replaced traditional foods with fast foods, and big clothing brands have replaced the unique traditional clothing. In short, people eat and dress the same despite the fact that they are from different societies and cultures in the world. Many societies are losing their identity and uniqueness that makes them different from the rest.

In conclusion, growth of trade through economic and financial globalization has benefited both the developed and the developing countries. Although there are risks involved such as unstable capital movements in globalization, bodies such as International monetary funds have put efforts to help economies to handle risks through economic analysis.

Globalization has been motivated by policies that have unlocked economies both locally and internationally. Many countries have taken up free market economic systems, which have increased their productivity and creation of many opportunities in global trade and investment. However, the all governments should understand how globalization works through analysis of issues and debates regarding globalization.

Bordo, M. (2005). Globalization in Historical Perspective . Chicago: University of Chicago Press.

Joshi, R. M. (2009). International Business. New York: Oxford University Press.

Waters, M. (2001). Globalization. London: Routledge.

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globalization

globalization , integration of the world’s economies, politics, and cultures. German-born American economist Theodore Levitt has been credited with having coined the term globalization in a 1983 article titled “The Globalization of Markets.” The phenomenon is widely considered to have begun in the 19th century following the advent of the Industrial Revolution , but some scholars date it more specifically to about 1870, when exports became a much more significant share of some countries’ gross domestic product (GDP). Its continued escalation is largely attributable to the development of new technologies—particularly in the fields of communication and transportation—and to the adoption of liberal trade policies by countries around the world.

Social scientists have identified the central aspects of globalization as interconnection, intensification, time-space distanciation (conditions that allow time and space to be organized in a manner that connects presence and absence), supraterritoriality, time-space compression, action at a distance, and accelerating interdependence. Modern analysts also conceive of globalization as a long-term process of deterritorialization—that is, of social activities (economic, political, and cultural) occurring without regard for geographic location. Thus, globalization can be defined as the stretching of economic, political, and social relationships in space and time. A manufacturer assembling a product for a distant market , a country submitting to international law , and a language adopting a foreign loanword are all examples of globalization.

Of course history is filled with such occurrences: Chinese artisans once wove silk bound for the Roman Empire ( see Silk Road ); kingdoms in western Europe honoured dictates of the Roman Catholic Church ; and English adopted many Norman French words in the centuries after the Battle of Hastings . These interactions and others laid the groundwork for globalization and are now recognized by historians and economists as important predecessors of the modern phenomenon. Analysts have labeled the 15th to 18th century as a period of “proto-globalization,” when European explorers established maritime trade routes across the Atlantic and Pacific oceans and encountered new lands. Integration prior to this time has been characterized as “archaic globalization.”

What distinguishes the process of modern globalization from those forms of global integration that preceded it are its pace and extent. According to some academics, three distinct eras of modern globalization can be identified, each of them marked by points of sudden acceleration in international interaction. Under this scheme, the “first globalization” era refers to the period between approximately 1870 and 1914, during which new transportation and communication technology decreased or eliminated many of the drawbacks to distance. The “second globalization” era is said to have lasted from roughly 1944 to 1971, a period in which an international monetary system based on the value of the U.S. dollar facilitated a new level of trade between capitalist countries. And the “third globalization” era is thought to have begun with the revolutions of 1989–90, which opened the communist Eastern bloc to the flow of capital and coincided with the creation of the World Wide Web . Some scholars argue that a new period of globalization, the “fourth globalization,” is underway, but there is little consensus on when this era began or whether it is truly distinct enough to merit its own designation.

New levels of interconnectedness fostered by globalization are credited for numerous benefits to humanity. The spread of industrial technology and the resulting increase in productivity have contributed to a reduction in the percentage of the world’s population living in poverty. The sharing of medical knowledge has dramatically decreased the incidence of once-feared diseases and even eliminated smallpox. And economic interdependence among countries discourages war between them.

However, the implementation of globalization has been much criticized, leading to the development of the anti-globalization movement. Opponents of globalization—or at least, globalization in its present form ( see neoliberal globalization )—represent a variety of interests on both the political left and right. Labour unions disdain multinational companies’ ability to move their operations to countries with cheaper labour; Indigenous peoples rue the difficulty of maintaining their traditions; and leftists object to the neoliberal character of the new world economy, arguing that the capitalist logic on which they contend globalization is based leads to asymmetrical power relations (both internationally and domestically) and transforms every aspect of life into a commodity. Right-wing critics of globalization believe that it threatens both national economies and national identity. They advocate national control of a country’s economy and rigidly restricted immigration.

Globalization has also produced effects that are more universally worrisome. Expanded transportation networks facilitate not only increased trade but also the spread of diseases. Undesirable trade, such as human trafficking and poaching, has flourished alongside legitimate commerce. Moreover, the pollution generated by the world’s modernization has resulted in global warming and climate change , threatening Earth’s very habitability.

Whether globalization will adapt to these problems remains to be seen, but it is already changing again. For example, globalization began in the 19th century with an explosion in exports, but, even before the COVID-19 pandemic that swept through the world in 2020 resulted in global lockdowns, trade as a share of many countries’ GDP had fallen. It can be argued that the global supply chains today rely more on knowledge than on labour . And services now constitute a larger share of the global economy than goods. A “fourth globalization” might indeed be here—or at least on the way.

Costs and benefits of globalisation

Globalisation is a complex and controversial issue. This is a look at some of the main benefits and costs associated with the greater globalisation of the world economy.

Definition of Globalisation The process of increased integration and co-operation of different national economies. It involves national economies becoming increasingly inter-related and integrated.

Globalisation has involved :

• Greater free trade.
• Greater movement of labour.
• Increased capital flows.
• The growth of multi-national companies.
• Increased integration of global trade cycle.
• Increased communication and improved transport, effectively reducing barriers between countries.

Summary of costs/benefits

Benefits of globalisation

1. Free trade is a way for countries to exchange goods and resources. This means countries can specialise in producing goods where they have a comparative advantage (this means they can produce goods at a lower opportunity cost). When countries specialise there will be several gains from trade:

• Lower prices for consumers
• Greater choice of goods, e.g food imports enable a more extensive diet.
• Bigger export markets for domestic manufacturers
• Economies of scale through being able to specialise in certain goods
• Greater competition

See: Benefits of Free Trade

2. Free movement of labour

Increased labour migration gives advantages to both workers and recipient countries. If a country experiences high unemployment, there are increased opportunities to look for work elsewhere. This process of labour migration also helps reduce geographical inequality. This has been quite effective in the EU, with many Eastern European workers migrating west.

Also, it helps countries with labour shortages fill important posts. For example, the UK needed to recruit nurses from the far east to fill shortages.

• However, this issue is also quite controversial. Some are concerned that the free movement of labour can cause excess pressure on housing and social services in some countries. Countries like the US have responded to this process by actively trying to prevent migrants from other countries.

See also: free movement of labour

3. Increased economies of scale

Production is increasingly specialised. Globalisation enables goods to be produced in different parts of the world. This greater specialisation enables lower average costs and lower prices for consumers.

4. Greater competition

Domestic monopolies used to be protected by a lack of competition. However, globalisation means that firms face greater competition from foreign firms.

5. Increased investment

Globalisation has also enabled increased levels of investment. It has made it easier for countries to attract short-term and long-term investment. Investment by multinational companies can play a big role in improving the economies of developing countries.

Costs of globalisation

1. Free trade can harm developing economies

Developing countries often struggle to compete with developed countries, therefore it is argued free trade benefits developed countries more. There is an infant industry argument which says industries in developing countries need protection from free trade to be able to develop. However, developing countries are often harmed by tariff protection, that western economies have on agriculture. Paradox of Free Trade

2. Environmental costs

One problem of globalisation is that it has increased the use of non-renewable resources. It has also contributed to increased pollution and global warming. Firms can also outsource production to where environmental standards are less strict. However, arguably the problem is not so much globalisation as a failure to set satisfactory environmental standards.

3. Labour drain

Globalisation enables workers to move more freely. Therefore, some countries find it difficult to hold onto their best-skilled workers, who are attracted by higher wages elsewhere.

4. Less cultural diversity

Globalisation has led to increased economic and cultural hegemony. With globalisation there is arguably less cultural diversity; however, it is also led to more options for some people.

5. Tax competition and tax avoidance

Multinational companies like Amazon and Google, can set up offices in countries like Bermuda and Luxembourg with very low rates of corporation tax and then funnel their profits through these subsidiaries. This means they pay very little tax in the countries where they do most of their business. This means governments have to increase taxes on VAT and income tax. It is also seen as unfair competition for domestic firms who don’t use the same tax avoidance measures.

The greater mobility of capital means that countries have sought to encourage inward investment by offering the lowest corporation tax. (e.g. Ireland offers very low tax rate). This has encouraged lower corporation tax, which leads to higher forms of other tax. (see: Tax competition )

• Impact of globalisation
• The winners and losers from globalisation
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• What is globalisation?
• What is globalisation? at Guardian

36 thoughts on “Costs and benefits of globalisation”

thaannkkss GREAT INFO

hey guys i’m looking for the benefits of developing countries and developed countries and have had no luck could anyone help?

I’ve just been reading a Stiglitz article (he used to be chief in the IMF/World Bank) and “globalization of knowledge” has been one benefit for developing countries. But sadly it depends on the side that you’re on. Economists will reel off the benefits of trade between countries, capital flow and labour flow. Anthropologists and social scientists will explain a lot of inequalities – the rich on a global scale have got richer and the poor, well guess what? yep, not a lot has happened there. Social science will detail (Stiglitz does too) how developed countries have profited off the poor, even via aid agencies and finance institutions such as the World Bank, IMF and WTO, who are supposed to be acting in developing countries best interests.

I think you can tell what side I’m on. Yes, I study anthropology and doing an essay on development as we speak 😉

what are the benefits of globalisation on both develoed and developing

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hey I am looking for how globalization affect reduction of cost

Hello, I am wondering if there are any disadvantages to consumer because of globalization. of course there are numerous advantages. can anyone please answer me. I would be grateful. thanks

if it were cheaper for a firm to produce/manufacture a good somewhere else can cause loss of jobs for people working for the firm. major multinational firms paying less tax in another country and not in the country they are earning will cause the government rely more heavily on smaller firms and consumers to gain tax mula.

Are those the only advantages of globalization on an economy?

what is the cost and benefits of globalisation on less developed countries?

Imagine thinking you are qualified to help people learn about globalization but not even knowing how to spell it.

We use British-English not American-English

How is less cultural diversity a cost of globalisation. Wouldn’t cultures spread worldwide from globalisation

no, globalization makes it easier than ever to access foreign culture, including food, movies, music, and art. This free flow of people, goods, art, and information is the reason you can have Thai food delivered to your apartment as you listen to your favorite UK-based artist or stream a Hollywood movie.

Once they get back they will be there and they are going on a walk in and the other is the same way as you can see the sun and earth is earth sun sky earth sun sun sky sun earth earth

A very useful piece of work

Love economics guys, absolutely love it, keep up this page, its greaaaaaaaaaatttttttt!!!!!!!!!!!!!!

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Globalization and Economic Growth

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Globalization, or the increased interconnectedness and interdependence of peoples, companies, institutions and countries. It is generally understood to include two inter-related elements: the opening of international borders to increasingly fast flows of goods, services, finance, investment, people, information, ideas and technology; and the changes in institutions and policies at national and international levels that facilitate or promote such flows (WHO 2020 ). Globalization process has impacts on economies, prosperity, development of societies, political systems, environment, and cultures around the world.

Economic globalization can be defined as the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies. It reflects the continuing expansion and mutual...

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Demir, I., Canakci, M., Egri, T. (2021). Globalization and Economic Growth. In: Leal Filho, W., Azul, A.M., Brandli, L., Lange Salvia, A., Wall, T. (eds) Decent Work and Economic Growth. Encyclopedia of the UN Sustainable Development Goals. Springer, Cham. https://doi.org/10.1007/978-3-319-71058-7_90-1

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Peer-reviewed

Research Article

Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities

* E-mail: [email protected]

Affiliations Faculty of Management, Universiti Teknologi Malaysia (UTM), Johor, Malaysia, Department of Management, Mobarakeh Branch, Islamic Azad University, Isfahan, Iran

Affiliation Applied Statistics Department, Economics and Administration Faculty, University of Malaya, Kuala Lumpur, Malaysia

• Parisa Samimi, 
• Hashem Salarzadeh Jenatabadi

• Published: April 10, 2014
• https://doi.org/10.1371/journal.pone.0087824
• Reader Comments

This study was carried out to investigate the effect of economic globalization on economic growth in OIC countries. Furthermore, the study examined the effect of complementary policies on the growth effect of globalization. It also investigated whether the growth effect of globalization depends on the income level of countries. Utilizing the generalized method of moments (GMM) estimator within the framework of a dynamic panel data approach, we provide evidence which suggests that economic globalization has statistically significant impact on economic growth in OIC countries. The results indicate that this positive effect is increased in the countries with better-educated workers and well-developed financial systems. Our finding shows that the effect of economic globalization also depends on the country’s level of income. High and middle-income countries benefit from globalization whereas low-income countries do not gain from it. In fact, the countries should receive the appropriate income level to be benefited from globalization. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

Citation: Samimi P, Jenatabadi HS (2014) Globalization and Economic Growth: Empirical Evidence on the Role of Complementarities. PLoS ONE 9(4): e87824. https://doi.org/10.1371/journal.pone.0087824

Editor: Rodrigo Huerta-Quintanilla, Cinvestav-Merida, Mexico

Received: November 5, 2013; Accepted: January 2, 2014; Published: April 10, 2014

Copyright: © 2014 Samimi, Jenatabadi. This is an open-access article distributed under the terms of the Creative Commons Attribution License , which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.

Funding: The study is supported by the Ministry of Higher Education of Malaysia, Malaysian International Scholarship (MIS). The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript.

Competing interests: The authors have declared that no competing interests exist.

Introduction

Globalization, as a complicated process, is not a new phenomenon and our world has experienced its effects on different aspects of lives such as economical, social, environmental and political from many years ago [1] – [4] . Economic globalization includes flows of goods and services across borders, international capital flows, reduction in tariffs and trade barriers, immigration, and the spread of technology, and knowledge beyond borders. It is source of much debate and conflict like any source of great power.

The broad effects of globalization on different aspects of life grab a great deal of attention over the past three decades. As countries, especially developing countries are speeding up their openness in recent years the concern about globalization and its different effects on economic growth, poverty, inequality, environment and cultural dominance are increased. As a significant subset of the developing world, Organization of Islamic Cooperation (OIC) countries are also faced by opportunities and costs of globalization. Figure 1 shows the upward trend of economic globalization among different income group of OIC countries.

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https://doi.org/10.1371/journal.pone.0087824.g001

Although OICs are rich in natural resources, these resources were not being used efficiently. It seems that finding new ways to use the OICs economic capacity more efficiently are important and necessary for them to improve their economic situation in the world. Among the areas where globalization is thought, the link between economic growth and globalization has been become focus of attention by many researchers. Improving economic growth is the aim of policy makers as it shows the success of nations. Due to the increasing trend of globalization, finding the effect of globalization on economic growth is prominent.

The net effect of globalization on economic growth remains puzzling since previous empirical analysis did not support the existent of a systematic positive or negative impact of globalization on growth. Most of these studies suffer from econometrics shortcoming, narrow definition of globalization and small number of countries. The effect of economic globalization on the economic growth in OICs is also ambiguous. Existing empirical studies have not indicated the positive or negative impact of globalization in OICs. The relationship between economic globalization and economic growth is important especially for economic policies.

Recently, researchers have claimed that the growth effects of globalization depend on the economic structure of the countries during the process of globalization. The impact of globalization on economic growth of countries also could be changed by the set of complementary policies such as improvement in human capital and financial system. In fact, globalization by itself does not increase or decrease economic growth. The effect of complementary policies is very important as it helps countries to be successful in globalization process.

In this paper, we examine the relationship between economic globalization and growth in panel of selected OIC countries over the period 1980–2008. Furthermore, we would explore whether the growth effects of economic globalization depend on the set of complementary policies and income level of OIC countries.

The paper is organized as follows. The next section consists of a review of relevant studies on the impact of globalization on growth. Afterward the model specification is described. It is followed by the methodology of this study as well as the data sets that are utilized in the estimation of the model and the empirical strategy. Then, the econometric results are reported and discussed. The last section summarizes and concludes the paper with important issues on policy implications.

Literature Review

The relationship between globalization and growth is a heated and highly debated topic on the growth and development literature. Yet, this issue is far from being resolved. Theoretical growth studies report at best a contradictory and inconclusive discussion on the relationship between globalization and growth. Some of the studies found positive the effect of globalization on growth through effective allocation of domestic resources, diffusion of technology, improvement in factor productivity and augmentation of capital [5] , [6] . In contrast, others argued that globalization has harmful effect on growth in countries with weak institutions and political instability and in countries, which specialized in ineffective activities in the process of globalization [5] , [7] , [8] .

Given the conflicting theoretical views, many studies have been empirically examined the impact of the globalization on economic growth in developed and developing countries. Generally, the literature on the globalization-economic growth nexus provides at least three schools of thought. First, many studies support the idea that globalization accentuates economic growth [9] – [19] . Pioneering early studies include Dollar [9] , Sachs et al. [15] and Edwards [11] , who examined the impact of trade openness by using different index on economic growth. The findings of these studies implied that openness is associated with more rapid growth.

In 2006, Dreher introduced a new comprehensive index of globalization, KOF, to examine the impact of globalization on growth in an unbalanced dynamic panel of 123 countries between 1970 and 2000. The overall result showed that globalization promotes economic growth. The economic and social dimensions have positive impact on growth whereas political dimension has no effect on growth. The robustness of the results of Dreher [19] is approved by Rao and Vadlamannati [20] which use KOF and examine its impact on growth rate of 21 African countries during 1970–2005. The positive effect of globalization on economic growth is also confirmed by the extreme bounds analysis. The result indicated that the positive effect of globalization on growth is larger than the effect of investment on growth.

The second school of thought, which supported by some scholars such as Alesina et al. [21] , Rodrik [22] and Rodriguez and Rodrik [23] , has been more reserve in supporting the globalization-led growth nexus. Rodriguez and Rodrik [23] challenged the robustness of Dollar (1992), Sachs, Warner et al. (1995) and Edwards [11] studies. They believed that weak evidence support the idea of positive relationship between openness and growth. They mentioned the lack of control for some prominent growth indicators as well as using incomprehensive trade openness index as shortcomings of these works. Warner [24] refuted the results of Rodriguez and Rodrik (2000). He mentioned that Rodriguez and Rodrik (2000) used an uncommon index to measure trade restriction (tariffs revenues divided by imports). Warner (2003) explained that they ignored all other barriers on trade and suggested using only the tariffs and quotas of textbook trade policy to measure trade restriction in countries.

Krugman [25] strongly disagreed with the argument that international financial integration is a major engine of economic development. This is because capital is not an important factor to increase economic development and the large flows of capital from rich to poor countries have never occurred. Therefore, developing countries are unlikely to increase economic growth through financial openness. Levine [26] was more optimistic about the impact of financial liberalization than Krugman. He concluded, based on theory and empirical evidences, that the domestic financial system has a prominent effect on economic growth through boosting total factor productivity. The factors that improve the functioning of domestic financial markets and banks like financial integration can stimulate improvements in resource allocation and boost economic growth.

The third school of thoughts covers the studies that found nonlinear relationship between globalization and growth with emphasis on the effect of complementary policies. Borensztein, De Gregorio et al. (1998) investigated the impact of FDI on economic growth in a cross-country framework by developing a model of endogenous growth to examine the role of FDI in the economic growth in developing countries. They found that FDI, which is measured by the fraction of products produced by foreign firms in the total number of products, reduces the costs of introducing new varieties of capital goods, thus increasing the rate at which new capital goods are introduced. The results showed a strong complementary effect between stock of human capital and FDI to enhance economic growth. They interpreted this finding with the observation that the advanced technology, brought by FDI, increases the growth rate of host economy when the country has sufficient level of human capital. In this situation, the FDI is more productive than domestic investment.

Calderón and Poggio [27] examined the structural factors that may have impact on growth effect of trade openness. The growth benefits of rising trade openness are conditional on the level of progress in structural areas including education, innovation, infrastructure, institutions, the regulatory framework, and financial development. Indeed, they found that the lack of progress in these areas could restrict the potential benefits of trade openness. Chang et al. [28] found that the growth effects of openness may be significantly improved when the investment in human capital is stronger, financial markets are deeper, price inflation is lower, and public infrastructure is more readily available. Gu and Dong [29] emphasized that the harmful or useful growth effect of financial globalization heavily depends on the level of financial development of economies. In fact, if financial openness happens without any improvement in the financial system of countries, growth will replace by volatility.

However, the review of the empirical literature indicates that the impact of the economic globalization on economic growth is influenced by sample, econometric techniques, period specifications, observed and unobserved country-specific effects. Most of the literature in the field of globalization, concentrates on the effect of trade or foreign capital volume (de facto indices) on economic growth. The problem is that de facto indices do not proportionally capture trade and financial globalization policies. The rate of protections and tariff need to be accounted since they are policy based variables, capturing the severity of trade restrictions in a country. Therefore, globalization index should contain trade and capital restrictions as well as trade and capital volume. Thus, this paper avoids this problem by using a comprehensive index which called KOF [30] . The economic dimension of this index captures the volume and restriction of trade and capital flow of countries.

Despite the numerous studies, the effect of economic globalization on economic growth in OIC is still scarce. The results of recent studies on the effect of globalization in OICs are not significant, as they have not examined the impact of globalization by empirical model such as Zeinelabdin [31] and Dabour [32] . Those that used empirical model, investigated the effect of globalization for one country such as Ates [33] and Oyvat [34] , or did it for some OIC members in different groups such as East Asia by Guillaumin [35] or as group of developing countries by Haddad et al. [36] and Warner [24] . Therefore, the aim of this study is filling the gap in research devoted solely to investigate the effects of economic globalization on growth in selected OICs. In addition, the study will consider the impact of complimentary polices on the growth effects of globalization in selected OIC countries.

Model Specification

Methodology and Data

This paper applies the generalized method of moments (GMM) panel estimator first suggested by Anderson and Hsiao [38] and later developed further by Arellano and Bond [39] . This flexible method requires only weak assumption that makes it one of the most widely used econometric techniques especially in growth studies. The dynamic GMM procedure is as follow: first, to eliminate the individual effect form dynamic growth model, the method takes differences. Then, it instruments the right hand side variables by using their lagged values. The last step is to eliminate the inconsistency arising from the endogeneity of the explanatory variables.

The consistency of the GMM estimator depends on two specification tests. The first is a Sargan test of over-identifying restrictions, which tests the overall validity of the instruments. Failure to reject the null hypothesis gives support to the model. The second test examines the null hypothesis that the error term is not serially correlated.

The GMM can be applied in one- or two-step variants. The one-step estimators use weighting matrices that are independent of estimated parameters, whereas the two-step GMM estimator uses the so-called optimal weighting matrices in which the moment conditions are weighted by a consistent estimate of their covariance matrix. However, the use of the two-step estimator in small samples, as in our study, has problem derived from proliferation of instruments. Furthermore, the estimated standard errors of the two-step GMM estimator tend to be small. Consequently, this paper employs the one-step GMM estimator.

In the specification, year dummies are used as instrument variable because other regressors are not strictly exogenous. The maximum lags length of independent variable which used as instrument is 2 to select the optimal lag, the AR(1) and AR(2) statistics are employed. There is convincing evidence that too many moment conditions introduce bias while increasing efficiency. It is, therefore, suggested that a subset of these moment conditions can be used to take advantage of the trade-off between the reduction in bias and the loss in efficiency. We restrict the moment conditions to a maximum of two lags on the dependent variable.

Data and Empirical Strategy

We estimated Eq. (1) using the GMM estimator based on a panel of 33 OIC countries. Table S1 in File S1 lists the countries and their income groups in the sample. The choice of countries selected for this study is primarily dictated by availability of reliable data over the sample period among all OIC countries. The panel covers the period 1980–2008 and is unbalanced. Following [40] , we use annual data in order to maximize sample size and to identify the parameters of interest more precisely. In fact, averaging out data removes useful variation from the data, which could help to identify the parameters of interest with more precision.

The dependent variable in our sample is logged per capita real GDP, using the purchasing power parity (PPP) exchange rates and is obtained from the Penn World Table (PWT 7.0). The economic dimension of KOF index is derived from Dreher et al. [41] . We use some other variables, along with economic globalization to control other factors influenced economic growth. Table S2 in File S2 shows the variables, their proxies and source that they obtain.

We relied on the three main approaches to capture the effects of economic globalization on economic growth in OIC countries. The first one is the baseline specification (Eq. (1)) which estimates the effect of economic globalization on economic growth.

The second approach is to examine whether the effect of globalization on growth depends on the complementary policies in the form of level of human capital and financial development. To test, the interactions of economic globalization and financial development (KOF*FD) and economic globalization and human capital (KOF*HCS) are included as additional explanatory variables, apart from the standard variables used in the growth equation. The KOF, HCS and FD are included in the model individually as well for two reasons. First, the significance of the interaction term may be the result of the omission of these variables by themselves. Thus, in that way, it can be tested jointly whether these variables affect growth by themselves or through the interaction term. Second, to ensure that the interaction term did not proxy for KOF, HCS or FD, these variables were included in the regression independently.

In the third approach, in order to study the role of income level of countries on the growth effect of globalization, the countries are split based on income level. Accordingly, countries were classified into three groups: high-income countries (3), middle-income (21) and low-income (9) countries. Next, dummy variables were created for high-income (Dum 3), middle-income (Dum 2) and low-income (Dum 1) groups. Then interaction terms were created for dummy variables and KOF. These interactions will be added to the baseline specification.

Findings and Discussion

This section presents the empirical results of three approaches, based on the GMM -dynamic panel data; in Tables 1 – 3 . Table 1 presents a preliminary analysis on the effects of economic globalization on growth. Table 2 displays coefficient estimates obtained from the baseline specification, which used added two interaction terms of economic globalization and financial development and economic globalization and human capital. Table 3 reports the coefficients estimate from a specification that uses dummies to capture the impact of income level of OIC countries on the growth effect of globalization.

https://doi.org/10.1371/journal.pone.0087824.t001

https://doi.org/10.1371/journal.pone.0087824.t002

https://doi.org/10.1371/journal.pone.0087824.t003

The results in Table 1 indicate that economic globalization has positive impact on growth and the coefficient is significant at 1 percent level. The positive effect is consistent with the bulk of the existing empirical literature that support beneficial effect of globalization on economic growth [9] , [11] , [13] , [19] , [42] , [43] .

According to the theoretical literature, globalization enhances economic growth by allocating resources more efficiently as OIC countries that can be specialized in activities with comparative advantages. By increasing the size of markets through globalization, these countries can be benefited from economic of scale, lower cost of research and knowledge spillovers. It also augments capital in OICs as they provide a higher return to capital. It has raised productivity and innovation, supported the spread of knowledge and new technologies as the important factors in the process of development. The results also indicate that growth is enhanced by lower level of government expenditure, lower level of inflation, higher level of human capital, deeper financial development, more domestic investment and better institutions.

Table 2 represents that the coefficients on the interaction between the KOF, HCS and FD are statistically significant at 1% level and with the positive sign. The findings indicate that economic globalization not only directly promotes growth but also indirectly does via complementary reforms. On the other hand, the positive effect of economic globalization can be significantly enhanced if some complementary reforms in terms of human capital and financial development are undertaken.

In fact, the implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. However, countries with higher level of human capital can be better and faster to imitate and implement the transferred technologies. Besides, the financial openness brings along the knowledge and managerial for implementing the new technology. It can be helpful in improving the level of human capital in host countries. Moreover, the strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in developing countries. Overall, with higher level of human capital and stronger financial systems, the globalized countries benefit from the growth effect of globalization. The obtained results supported by previous studies in relative to financial and trade globalization such as [5] , [27] , [44] , [45] .

Table (3 ) shows that the estimated coefficients on KOF*dum3 and KOF*dum2 are statistically significant at the 5% level with positive sign. The KOF*dum1 is statistically significant with negative sign. It means that increase in economic globalization in high and middle-income countries boost economic growth but this effect is diverse for low-income countries. The reason might be related to economic structure of these countries that are not received to the initial condition necessary to be benefited from globalization. In fact, countries should be received to the appropriate income level to be benefited by globalization.

The diagnostic tests in tables 1 – 3 show that the estimated equation is free from simultaneity bias and second-order correlation. The results of Sargan test accept the null hypothesis that supports the validity of the instrument use in dynamic GMM.

Conclusions and Implications

Numerous researchers have investigated the impact of economic globalization on economic growth. Unfortunately, theoretical and the empirical literature have produced conflicting conclusions that need more investigation. The current study shed light on the growth effect of globalization by using a comprehensive index for globalization and applying a robust econometrics technique. Specifically, this paper assesses whether the growth effects of globalization depend on the complementary polices as well as income level of OIC countries.

Using a panel data of OIC countries over the 1980–2008 period, we draw three important conclusions from the empirical analysis. First, the coefficient measuring the effect of the economic globalization on growth was positive and significant, indicating that economic globalization affects economic growth of OIC countries in a positive way. Second, the positive effect of globalization on growth is increased in countries with higher level of human capital and deeper financial development. Finally, economic globalization does affect growth, whether the effect is beneficial depends on the level of income of each group. It means that economies should have some initial condition to be benefited from the positive effects of globalization. The results explain why some countries have been successful in globalizing world and others not.

The findings of our study suggest that public policies designed to integrate to the world might are not optimal for economic growth by itself. Economic globalization not only directly promotes growth but also indirectly does so via complementary reforms.

The policy implications of this study are relatively straightforward. Integrating to the global economy is only one part of the story. The other is how to benefits more from globalization. In this respect, the responsibility of policymakers is to improve the level of educated workers and strength of financial systems to get more opportunities from globalization. These economic policies are important not only in their own right, but also in helping developing countries to derive the benefits of globalization.

However, implementation of new technologies transferred from advanced economies requires skilled workers. The results of this study confirm the importance of increasing educated workers as a complementary policy in progressing globalization. In fact, countries with higher level of human capital can better and faster imitate and implement the transferred technologies. The higher level of human capital and certain skill of human capital determine whether technology is successfully absorbed across countries. This shows the importance of human capital in the success of countries in the globalizing world.

Financial openness in the form of FDI brings along the knowledge and managerial for implementing the new technology. It can be helpful in upgrading the level of human capital in host countries. Moreover, strong and well-functioned financial systems can lead the flow of foreign capital to the productive and compatible sectors in OICs.

In addition, the results show that economic globalization does affect growth, whether the effect is beneficial depends on the level of income of countries. High and middle income countries benefit from globalization whereas low-income countries do not gain from it. As Birdsall [46] mentioned globalization is fundamentally asymmetric for poor countries, because their economic structure and markets are asymmetric. So, the risks of globalization hurt the poor more. The structure of the export of low-income countries heavily depends on primary commodity and natural resource which make them vulnerable to the global shocks.

The major research limitation of this study was the failure to collect data for all OIC countries. Therefore future research for all OIC countries would shed light on the relationship between economic globalization and economic growth.

Supporting Information

Sample of Countries.

https://doi.org/10.1371/journal.pone.0087824.s001

The Name and Definition of Indicators.

https://doi.org/10.1371/journal.pone.0087824.s002

Author Contributions

Conceived and designed the experiments: PS. Performed the experiments: PS. Analyzed the data: PS. Contributed reagents/materials/analysis tools: PS HSJ. Wrote the paper: PS HSJ.

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3 (page 38) p. 38 C3 The economic dimension of globalization

• Published: May 2020
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Economic globalization refers to the intensification and stretching of economic connections across the globe. ‘The economic dimension of globalization’ gives a brief history of the emergence of the global economic order. Towards the end of the Second World War, the Bretton Woods Conference laid the foundations for institutions such as the International Monetary Fund, the World Bank, and World Trade Organization. In the 1980s, rising neoliberalism led to the deregulation of financial transactions. Significant developments include the internationalization of trade, the increasing power of transnational corporations, and the enhanced role of international economic institutions. We have recently experienced setbacks like the 2007–10 recession and the slowdown of the Chinese economy.

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• OECD Insights

Economic Globalisation

Introduction, origins and consequences.

Few subjects are as controversial – and poorly understood – as globalisation. While in its broadest sense, economic globalisation is as old as trade itself, the recent financial crisis has amplified the complexity associated with the global interconnectedness of the world’s economies and its ramifications on our livelihoods.

This publication reviews the major turning points in the history of economic integration, and in particular the pace at which it has accelerated since the 1990s. It also considers its impact in four crucial areas, namely employment, development, the environment and financial stability: does globalisation foster development or create inequality? Does it promote or destroy jobs? Is it damaging to the environment or compatible with its preservation? Are we heading towards de-globalisation or can globalisation in fact enable recovery?

English Also available in: French , German , Spanish

• Sustainable Development
• Human Capital
• From Aid to Development
• International Migration
• Globalisation, Comparative Advantage and the Changing Dynamics of Trade
• International Trade
• From Crisis to Recovery
• Measuring Globalisation: OECD Economic Globalisation Indicators 2010
• https://doi.org/10.1787/9789264111905-en
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• Click to download EPUB - 1.49MB ePUB
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Economic globalisation is highly controversial – even more so since the recent global economic crisis. “Pro-globalists” and “anti-globalists” (also known as “alter-globalists”) have hotly debated the issue for a good twenty years. Most of this planet’s inhabitants experience some of the considerable benefits and also the tragic downside of globalisation in their daily lives. It is essential to trace the history of this complex phenomenon and the various forms it takes if we want to tackle the challenges it brings in its wake.

English Also available in: German , French

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Author(s) OECD

11 Apr 2013

Pages: 10 - 17

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Journal of Economic Literature

Inequality and globalization: a review essay.

ISSN 0022-0515 (Print) | ISSN 2328-8175 (Online)

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JEL Classification

• F63 Economic Impacts of Globalization: Economic Development

Is globalization an engine of economic development?

All people living in today's world have experienced some of the benefits of globalization: the expansion of foreign trade has meant that vaccines and antibiotics produced in a handful of countries have been widely used all over the world to eradicate diseases and treat deadly infections. Since 1900, life expectancy has increased in every country in the world , and global average life expectancy has more than doubled .

Globalization has also been a key driver of unprecedented economic growth and as a result, we now live in a world with much less poverty .

Yet these achievements are the product of multiple forces, and globalization is only one of them. The increasing potential of governments to collect revenues and redistribute resources through social transfers has been another important factor contributing to improved standards of living around the world. Neither free market capitalism nor social democracy alone has been responsible for economic development. On the contrary, they often work together.

In this blog post, we discuss in more detail the evidence behind these claims.

The rise of globalization

International trade has been part of the world economy for thousands of years . Despite this long history, the importance of foreign trade was modest until the beginning of the 19th century—the sum of worldwide exports and imports never exceeded 10% of global output before 1800 .

Then around 1820 things started to change quickly. Around that time, technological advances and political liberalism triggered what we know today as the 'first wave of globalization'.

This first wave of globalization came to an end with the beginning of the First World War, when the decline of liberalism and the rise of nationalism led to a collapse in international trade. But this was temporary and after the Second World War, trade started growing again. This second wave of globalization, which continues today, has seen international trade grow faster than ever before. Today, around 60% of all goods and services produced in the world are shipped across country borders. (In our entry on International Trade you find more details regarding the particular features that characterize the first and second waves of globalization.)

The chart here shows the remarkable growth of foreign trade since 1800. The series shows the value of world exports in constant prices—world exports have been indexed, so that values are relative to the value of exports in the year 1913.

The broad trend in this chart is striking: Trade followed an exponential path. Other metrics of trade, such as the share of imports and exports in global output , tell the same story.

In just a few generations, globalization completely changed the world economy.

The correlation between globalization, economic growth and poverty reductions

In the period in which international trade expanded, the average world income increased substantially and the share of the population living in extreme poverty went down continuously.

GDP per capita is a common metric used for measuring national average incomes. By this measure, average incomes followed a similar growth pattern to international trade. For thousands of years, global GDP per capita had a negligible growth rate: technological progress in the preindustrial world produced people rather than prosperity . Over the course of the 19th century, however, alongside the first wave of globalization, this changed substantially. In this period, economic growth started accelerating and global GDP per capita has been growing constantly over the last two centuries—with the exception of lower growth rates during the years between the two world wars. (You can read more about these trends in our entry on Economic Growth .)

Regarding extreme poverty, the available evidence shows that up until 1800, the vast majority of people around the world lived in extreme deprivation , with only a tiny elite enjoying higher standards of living. In the 19th century we began making progress and the share of people living in extreme poverty started to slowly decline. This trend is shown in the chart here. As we can see, today, two hundred years later, the share of people living in extreme poverty is less than 10%. This is an achievement that would have been unthinkable to our ancestors. 1

The stark trend in the incidence of poverty is particularly remarkable if we consider that the world population increased 7-fold over the same period. In a world without economic growth, such an increase in the population would have resulted in less and less consumption for everyone. And yet, as the chart shows if you switch to the 'absolute' view, the exact opposite happened: in a time of unprecedented population growth, we managed to lift more and more people out of poverty.

Living with less than 1.90 dollars per day is difficult by any standard—the term 'extreme poverty' is appropriate. However, recent estimates show that no matter what global poverty line you choose, the share of people below that poverty line has declined . (In our entry on Global Extreme Poverty you can find more evidence supporting this important historical achievement.)

The link between globalization and absolute poverty

The fact that trade and average incomes followed similar upward trajectories in a period of unprecedented poverty reduction is of course not proof of a causal relationship. However, both evidence and theory suggest that what we observe is more than an accidental correlation.

Trade facilitates efficiency gains that are materialized in aggregate economic growth. From a conceptual point of view, international trade contributes to economic growth by allowing nations to specialize, in order to produce goods that they are relatively efficient at producing, while importing other goods. There is substantial empirical evidence backing this causal mechanism .

If trade leads to growth in average incomes, what does this mean for poverty? In a much-cited 2002 academic article, David Dollar and Aart Kraay empirically showed that on average, the income of the poorest grew one-for-one with average national incomes over the last four decades of the 20th century. 2 This means that trade has helped raise the incomes of the poor as much as it has helped raise average incomes. More recent articles have confirmed the original findings from Dollar and Kraay. 3

When taken together, the evidence thus tells us that globalization has contributed to reducing poverty around the world.

The link between globalization and inequality

That globalization is good for the poor is a statement that is true on average . In some countries and in some periods the poor did better than average, and sometimes they did worse.

Looking at the long-run average effect is very helpful to form an opinion regarding broad trends. However, these broad trends are not necessarily informative about how trade has affected the distribution of incomes generally; nor about how trade has affected specific groups of people in specific periods.

The same economic principles that suggest we should lend serious consideration to the efficiency gains from trade, suggest that we should do likewise for the distributional consequences from trade. If globalization generates growth by allowing countries to specialize in the production of goods that intensively use locally abundant resources, it is natural to expect that differences in the way resources are endowed will translate into differences in the way benefits are reaped.

If we take a look at the data, we observe that the process of globalization and growth that led to historical achievements in poverty reductions went along with a substantial increase in global income inequality .

The chart shows this by comparing the global income distribution at three points in time: 1800, 1975, and 2015. We can see that the world today is both much richer and more unequal than it was in 1800.

There are two forces that can drive global income inequality : within-country differences in incomes, and between-country differences in incomes. Which of the two is driving the trend we observe in this chart? The evidence suggests that it is the latter—global inequality increased in the period 1800-1975 because the countries that industrialized earlier grew faster.

In 1800, only a few countries had achieved economic growth while the majority of the world still lived in poverty. In the following century, more and more countries achieved sustained economic growth, and the global income distribution became much more unequal: there was a clear divergence between early-industrialized countries (where extreme forms of poverty were virtually eradicated) and the rest of the world. In the following decades and up until today, early-industrialized countries have continued growing, but the biggest changes have taken place at the bottom of the distribution. Today, global income inequality is lower than it was in 1975. But still, despite the ‘catch-up growth’ in recent decades, our world today is both much richer and more unequal than it was in 1800.

So, what does the data tell us about globalization? Over the last century, the gains from international trade were substantial and generally equally distributed within countries, but global inequality increased because for a long period early-industrialized countries had larger gains to distribute among their citizens.

The distribution of the gains from trade

The above conclusion that globalization has not had substantial effects on global inequality may seem paradoxical to some people—there is substantial evidence of growing inequality in many countries, including countries that have vehemently pursued trade liberalization. A notable case in point is the US, where income inequality has been on the rise in the last four decades, with incomes for the bottom 10% growing much more slowly than incomes for the top 10% . (You can read more about these within-country trends in our entry on Income Inequality .)

How can we reconcile these two empirical facts? In a recent article, Elhanan Helpman provides an answer informed by a meta-analysis of the available evidence: factors such as automation, technological changes, and market frictions, have contributed to the rise of inequality more than growth in international trade has. 4

If this is the case, then why has the view that globalization is bad for the working class captured the political debate in rich countries? Part of the answer has to do with the fact that people are misinformed about the evidence. But another important reason is that, while globalization may not have been the prime cause of growing inequality within many rich countries, it remains true that there are specific groups of people who have not reaped many of the benefits from globalization in recent years.

Daniel Trefler published a paper in 2004 showing that the 1989 free trade agreement between the US and Canada temporarily increased (for about three years) the level of unemployment in Canada. 5 And David Autor and colleagues published another much cited article in 2013 showing that imports from China had diverging effects on employment across various geographical zones in the US, with employment declining more in zones where industries were more exposed to import competition from China. 6

These effects on specific groups are real and need to be taken into account, even if they do not imply that ‘globalization is bad for the poor’. Public policies should protect and compensate workers whose earnings are adversely affected by globalization. And as a matter of fact, public policies in rich countries have done this to some degree in the past. As painful as job losses are for the affected workers, it is thanks to unemployment benefits and other safety-net policies that we do not observe unemployment leading to widespread extreme poverty in rich countries.

Which way forward?

Has globalization been an engine of economic development? The answer is yes. Globalization has had a positive effect on economic growth, contributing to rising living standards and the reduction of extreme poverty across the world.

Can we conclude from this that we should strive for a ‘hyper-globalized’ world economy in which there is completely free trade with no room for public policy and regulation? The answer is no.

The point is that the worldwide historical achievements that we can attribute to globalization are not independent of other factors, including the potential of governments to redistribute resources. Indeed, as the last chart here shows, the process of globalization that we have experienced in the last couple of centuries took place at the same time as governments increased their potential for taxing and redirecting resources through public policies, particularly social transfers.

How much integration in global markets would be optimal? I would be skeptical of anyone who offers a definitive answer. But it seems unlikely that the optimal degree of integration is either of the two extremes—neither ‘hyper-protectionism’ nor ‘hyper-globalization’ is likely to be the answer.

Policies aimed at liberalizing trade, and policies aimed at providing social safety nets, are often advocated by different groups, and it is common for these groups to argue that they are in conflict. But both economic theory and the empirical evidence from the successful fight against extreme poverty suggests this is a mistake: globalization and social policy should be treated as complements rather than substitutes.

The data in the chart here measures ‘extreme poverty’ as defined by the World Bank; people are considered to live in extreme poverty if they have to get by with less than 1.90 ‘international dollars’ per day. International dollars are a hypothetical currency that corrects incomes for differences in price levels in different countries as well as for inflation (explained by us here ).

Dollar, David, and Aart Kraay. "Growth is Good for the Poor." Journal of economic growth 7.3 (2002): 195-225.

See, for example, Dollar and Kraay (2004), "Trade, growth, and poverty." The Economic Journal 114.493 (2004) ; and Dollar, Kleineberg and Kraay (2014), "Growth, inequality, and social welfare : cross-country evidence." Policy Research Working Paper.

Helpman, Elhanan. Globalization and Wage Inequality. No. w22944. National Bureau of Economic Research, 2016.

Trefler, Daniel. "The long and short of the Canada-US free trade agreement." The American Economic Review 94.4 (2004): 870-895.

David, H., David Dorn, and Gordon H. Hanson. "The China syndrome: Local labor market effects of import competition in the United States." The American Economic Review 103.6 (2013): 2121-2168.

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ENCYCLOPEDIC ENTRY

Globalization.

Globalization is a term used to describe the increasing connectedness and interdependence of world cultures and economies.

Anthropology, Sociology, Social Studies, Civics, Economics

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Globalization is a term used to describe how trade and technology have made the world into a more connected and interdependent place. Globalization also captures in its scope the economic and social changes that have come about as a result. It may be pictured as the threads of an immense spider web formed over millennia, with the number and reach of these threads increasing over time. People, money, material goods, ideas, and even disease and devastation have traveled these silken strands, and have done so in greater numbers and with greater speed than ever in the present age. When did globalization begin? The Silk Road, an ancient network of trade routes across China, Central Asia, and the Mediterranean used between 50 B.C.E. and 250 C.E., is perhaps the most well-known early example of exchanging ideas, products, and customs. As with future globalizing booms, new technologies played a key role in the Silk Road trade. Advances in metallurgy led to the creation of coins; advances in transportation led to the building of roads connecting the major empires of the day; and increased agricultural production meant more food could be trafficked between locales. Along with Chinese silk, Roman glass, and Arabian spices, ideas such as Buddhist beliefs and the secrets of paper-making also spread via these tendrils of trade. Unquestionably, these types of exchanges were accelerated in the Age of Exploration, when European explorers seeking new sea routes to the spices and silks of Asia bumped into the Americas instead. Again, technology played an important role in the maritime trade routes that flourished between old and newly discovered continents. New ship designs and the creation of the magnetic compass were key to the explorers’ successes. Trade and idea exchange now extended to a previously unconnected part of the world, where ships carrying plants, animals, and Spanish silver between the Old World and the New also carried Christian missionaries. The web of globalization continued to spin out through the Age of Revolution, when ideas about liberty , equality , and fraternity spread like fire from America to France to Latin America and beyond. It rode the waves of industrialization , colonization , and war through the eighteenth, nineteenth, and twentieth centuries, powered by the invention of factories, railways, steamboats, cars, and planes. With the Information Age, globalization went into overdrive. Advances in computer and communications technology launched a new global era and redefined what it meant to be “connected.” Modern communications satellites meant the 1964 Summer Olympics in Tokyo could be watched in the United States for the first time. The World Wide Web and the Internet allowed someone in Germany to read about a breaking news story in Bolivia in real time. Someone wishing to travel from Boston, Massachusetts, to London, England, could do so in hours rather than the week or more it would have taken a hundred years ago. This digital revolution massively impacted economies across the world as well: they became more information-based and more interdependent. In the modern era, economic success or failure at one focal point of the global web can be felt in every major world economy. The benefits and disadvantages of globalization are the subject of ongoing debate. The downside to globalization can be seen in the increased risk for the transmission of diseases like ebola or severe acute respiratory syndrome (SARS), or in the kind of environmental harm that scientist Paul R. Furumo has studied in microcosm in palm oil plantations in the tropics. Globalization has of course led to great good, too. Richer nations now can—and do—come to the aid of poorer nations in crisis. Increasing diversity in many countries has meant more opportunity to learn about and celebrate other cultures. The sense that there is a global village, a worldwide “us,” has emerged.

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Related Resources

Globalisation ( AQA A Level Economics )

Revision note.

Economics Content Creator

The Causes of Globalisation

• Globalisation refers to the increasing interdependence of world economies as a result of the growing scale of cross-border trade of commodities and services, flow of international capital and wide and rapid spread of technologies
• In 2000, the value of global trade was approximately $6.45 trillion . By 2020, this figure was at $19 trillion
• Numerous factors have contributed to the rapid increase in the pace of globalisation but perhaps two of the most significant are the improvements in containerised shipping and the innovation in communication technology

Causes of Globalisation

The Main Characteristics of Globalisation

• Globalisation has been increasing for thousands of years - it is not a new phenomenon
• Improvements in technology and the speed of global connections have exponentially increased the level of interdependence between nations in the past 50 years
• Consumers now source products globally, recognising global brands wherever they travel

The Four Main Characteristics of Globalisation

The Consequences of Globalisation

• As firms grow in size, they benefit from economies of scale , causing costs to fall and consumers benefit in the form of lower prices 
• However,  tax avoidance  has become easier for global firms as they often exploit loopholes across different countries 

Consequences of globalisation for less-economically developed countries

Reduction in absolute poverty : Globalisation facilitates the flow of taxes from multinational corporations (MNC's) to host countries, enabling investment in vital public services such as healthcare, education, and infrastructure. This improves economic development

Employment opportunities : Increased involvement in global markets can generate jobs and higher incomes, potentially triggering a multiplier effect that stimulates overall economic growth. However, concerns arise regarding MNCs' exploitation of low-wage labour and poor working conditions in some instances, such as sweatshops

Depletion of natural resources: Some MNC's may exploit legal loopholes like transfer pricing and engage in corrupt practices, leading to the depletion of natural resources in developing countries. This phenomenon has been likened to a form of 'new colonialism'

Increased power of monopolies: Large firms can dictate prices and production levels across various regions. They may manipulate governments and gain access to raw materials through bribery and corruption

Consequences of globalisation for more-e conomically developed countries

• Increased trade: Trade favours more economically developed countries. They export more manufactured goods at much higher prices and import cheaper raw materials from poorer countries
• Increased capital flow :  The profits earned by MNCs are often repatriated to their home country

The Role of Multinational Corporations in Globalisation

• E.g. Starbucks headquarters are in Washington, USA but they have 32,000 stores in 80 countries

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Author: Lorraine Clancy

Lorraine brings over 12 years of dedicated teaching experience to the realm of Leaving Cert and IBDP Economics. Having served as the Head of Department in both Dublin and Milan, Lorraine has demonstrated exceptional leadership skills and a commitment to academic excellence. Lorraine has extended her expertise to private tuition, positively impacting students across Ireland. Lorraine stands out for her innovative teaching methods, often incorporating graphic organisers and technology to create dynamic and engaging classroom environments.

Post-Neoliberal Globalization: International Trade Rules for Global Prosperity

This paper analyzes frameworks for the design of the rules for international trading, assuming that it is possible to have some rule of law. In the Arrow-Debreu benchmark, where there is no economic power and political power is seemingly irrelevant, there is no need for trade agreements – free trade is the optimal policy for each country. But under even minimal deviations from that benchmark, trade agreements matter. We focus on environments in which there are market failures, technology is endogenous, and there is political power. Power dynamics play, for instance, a critical role in the design, implementation, and enforcement of agreements, with the latter being a critical difference between international agreements and domestic contracts and a key determinant of the feasibility and consequences of agreements. With endogenous technology, trade rules proscribing industrial policies may lead to lower growth and greater cross-country inequalities. Finally, we develop a framework which may be useful in the design and implementation of trade rules.

The authors would like to acknowledge the very thoughtful and constructive comments from David Vines, Simon Cowan, Giovanni Dosi, participants of seminars of the Oxford Review of Economic Policy, the University of Sao Paulo (Brazil), and The Foundations of Complex Evolving Economies Conference at Sant’ Anna School of Advanced Studies (Pisa, Italy), the excellent editorial work of Meaghan Winter, and the financial support of the Sloan and Hewlett Foundations. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.

MARC RIS BibTeΧ

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• Why global GDP might be $7trn bigger than everyone thought

The discovery has perturbed Chinese officials

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M any people have experienced the joy of finding some spare change down the back of the sofa. On May 30th the World Bank experienced something similar, if on a grander scale. After rooting around in 176 countries, it discovered almost $7trn in extra global GDP —equivalent to an extra France and a Mexico.

In fact, there may be a better analogy. What the World Bank discovered was not additional money to spend, but the equivalent of a discount voucher, which cuts 4% off the price of every good and service the world buys in a year. That means global spending can stretch further than previously thought.

To understand why, it helps to carry out a thought experiment. Imagine that the many countries of the world all produced only one thing: Big Macs. In calculating the GDP of these economies, their national accountants would use market prices. America might, for example, value Big Macs at $5.69 each (the average price across big American cities, according to McDonald’s). If it produced a hundred in a period of time, its GDP would be $569. In adding up the size of the world economy, it would make sense to use the same prices in all countries. If a rival economy produced 125 burgers, its measured GDP should be 25% higher.

Unfortunately, that is not how these calculations often work. America’s national accountants value the country’s Big Macs at American prices. China’s value theirs at the yuan price prevailing in their economy, which is around 25 yuan. When making international comparisons, China’s GDP is then converted into dollars using the market exchange rate of roughly 7.2 yuan to the dollar. The result is that China’s Big Macs are valued at only $3.47 in calculations of global GDP and not $5.69. Even if China and America produced the same number of Big Macs a year, China’s output would seem almost 40% smaller by conventional measures.

There is an obvious solution: ignore the currency markets and look at prices instead. If the yuan price of a Big Mac is roughly four times the dollar price, why not use that as the exchange rate? If China’s GDP were converted into dollars at 4.39 yuan to the dollar, its Big Macs would have the same value as America’s. These alternative exchange rates, which equalise the prices of goods and services, are known as purchasing-power parities, or PPP s.

Owing to this newspaper’s long-running Big Mac index , we can calculate parities for McDonald’s burgers. But they are only one product, however tasty, in the cornucopia of global capitalism. To carry out a similar adjustment across national economies, it would be necessary to collect the price of hundreds of goods and services in different places around the world.

Every few years, the World Bank leads an initiative to do just that. The International Comparison Programme, as it is called, has just concluded its latest effort, the tenth in the past 56 years. It gathered the prices of hundreds of items across 176 countries, taking care to look at similar products in each place. Within China alone teams consulted about 16,000 shops and other outlets. The exercise is not without its difficulties, both practical and conceptual. Not every good is as standardised as a Big Mac, making like-for-like comparisons a matter of judgment. And often the same consumer need is met by different goods in different parts of the world. In rural Thailand, workers live on rice. In similar parts of Ethiopia, they live on teff. But “rice is hard to find in Ethiopia and teff is impossible to find in Thailand, so price comparisons are not possible,” as Angus Deaton of Princeton University and Alan Heston of the University of Pennsylvania have pointed out.

Nonetheless, when the programme completed its work, it discovered that prices around the world were, on average, about 4% cheaper than previously thought, which meant the spending recorded by the world’s national accountants must have bought more stuff than previously guessed. The World Bank now calculates that global spending, across all countries and in a variety of currencies, had a purchasing power of $174trn in 2022. That is almost $7trn more than its prior estimate for the same year, which had drawn on the results of the previous comparison programme a few years ago, updated with national inflation rates.

This extra buying power is not evenly distributed. Almost $1.1trn of it was found in India, which is comfortably the third-biggest economy in the world by the PPP measure. The revisions also added $660bn to Russia’s economy, making it bigger than Japan’s. That is unwelcome news for Ukraine, which is fighting a costly war with its larger neighbour. But the embattled country can draw consolation from the extra $118bn that the revisions bestowed on it, increasing its purchasing power by more than a quarter.

The largest chunk of extra spending power—$1.4trn—accrued to China. The boost means its economy was 25% bigger than America’s in 2022, if similar items are valued at similar prices. Using market exchange rates, by contrast, China’s GDP was still almost 30% smaller. China’s officials did not seem thrilled. “We need to interpret the…results with caution and correctly grasp the global economic landscape and the status of each economy in it,” said the country’s statistical association. It stressed that the data were not “official” and that China was still a developing country.

Bigger than a pea

Indeed, even with the additional purchasing power, China’s GDP per person is mediocre, ranking 85th in the world and remaining firmly in line with the world average. Since China’s saving rate is so high, its consumer spending ranks even lower. According to the World Bank, individual consumption came to less than $9,300 in 2021, compared with a global average of $12,950. China’s figure, adjusted for purchasing power, remains lower than equivalent spending in South Africa or Peru. There is no point finding lost change down the sofa if you just stuff it under the mattress. ■

For more expert analysis of the biggest stories in economics, finance and markets, sign up to  Money Talks , our weekly subscriber-only newsletter.

Explore more

This article appeared in the Finance & economics section of the print edition under the headline “A lot of spare change”

Finance & economics June 8th 2024

• China’s economic model retains a dangerous allure

Is America’s economy heading for a consumer crunch?

Want to avoid woke stockmarket rules list in texas, european banks are making heady profits in russia, should you buy expensive stocks.

From the June 8th 2024 edition

Discover stories from this section and more in the list of contents

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Donald Trump’s trade hawk is plotting behind bars

Peter Navarro’s dark vision of the global economy could shape Trump 2

China is distorting its stockmarket by trying to prop it up

State purchases of shares are bad enough, but other measures are far more destructive

The Lone Star State is ready to take on New York

But for how much longer?

A new paper suggests the answer is “yes”

Warning signs have started to appear. But there are reasons for optimism

Global Growth Is Stabilizing for the First Time in Three Years

But 80% of world population will experience slower growth than in pre-COVID decade

WASHINGTON, June 11, 2024 — The global economy is expected to stabilize for the first time in three years in 2024—but at a level that is weak by recent historical standards, according to the World Bank’s latest Global Economic Prospects report.

Global growth is projected to hold steady at 2.6% in 2024 before edging up to an average of 2.7% in 2025-26. That is well below the 3.1% average in the decade before COVID-19. The forecast implies that over the course of 2024-26 countries that collectively account for more than 80% of the world’s population and global GDP would still be growing more slowly than they did in the decade before COVID-19.

Overall, developing economies are projected to grow 4% on average over 2024-25, slightly slower than in 2023. Growth in low-income economies is expected to accelerate to 5% in 2024 from 3.8% in 2023. However, the forecasts for 2024 growth reflect downgrades in three out of every four low-income economies since January. In advanced economies, growth is set to remain steady at 1.5% in 2024 before rising to 1.7% in 2025.

“Four years after the upheavals caused by the pandemic, conflicts, inflation, and monetary tightening, it appears that global economic growth is steadying,” said Indermit Gill, the World Bank Group’s Chief Economist and Senior Vice President. “ However, growth is at lower levels than before 2020. Prospects for the world’s poorest economies are even more worrisome. They face punishing levels of debt service, constricting trade possibilities, and costly climate events. Developing economies will have to find ways to encourage private investment, reduce public debt, and improve education, health, and basic infrastructure. The poorest among them—especially the 75 countries eligible for concessional assistance from the International Development Association—will not be able to do this without international support.”

This year, one in four developing economies is expected to remain poorer than it was on the eve of the pandemic in 2019. This proportion is twice as high for countries in fragile- and conflict-affected situations. Moreover, the income gap between developing economies and advanced economies is set to widen in nearly half of developing economies over 2020-24 —the highest share since the 1990s. Per capita income in these economies—an important indicator of living standards—is expected to grow by 3.0% on average through 2026, well below the average of 3.8% in the decade before COVID-19.

Global inflation is expected to moderate to 3.5% in 2024 and 2.9% in 2025, but the pace of decline is slower than was projected just six months ago. Many central banks, as a result, are expected to remain cautious in lowering policy interest rates. Global interest rates are likely to remain high by the standards of recent decades—averaging about 4% over 2025-26, roughly double the 2000-19 average.

“Although food and energy prices have moderated across the world, core inflation remains relatively high—and could stay that way,” said Ayhan Kose, the World Bank’s Deputy Chief Economist and Director of the Prospects Group . “That could prompt central banks in major advanced economies to delay interest-rate cuts. An environment of ‘higher-for-longer’ rates would mean tighter global financial conditions and much weaker growth in developing economies.”

The latest Global Economic Prospects report also features two analytical chapters of topical importance. The first outlines how public investment can be used to accelerate private investment and promote economic growth. It finds that public investment growth in developing economies has halved since the global financial crisis, dropping to an annual average of 5% in the past decade. Yet public investment can be a powerful policy lever. For developing economies with ample fiscal space and efficient government spending practices, scaling up public investment by 1% of GDP can increase the level of output by up to 1.6% over the medium term.

The second analytical chapter explores why small states—those with a population of around 1.5 million or less—suffer chronic fiscal difficulties. Two-fifths of the 35 developing economies that are small states are at high risk of debt distress or already in it. That’s roughly twice the share for other developing economies. Comprehensive reforms are needed to address the fiscal challenges of small states. Revenues could be drawn from a more stable and secure tax base. Spending efficiency could be improved —especially in health, education, and infrastructure. Fiscal frameworks could be adopted to manage the higher frequency of natural disasters and other shocks. Targeted and coordinated global policies can also help put these countries on a more sustainable fiscal path.

Download the full report: https://bit.ly/GEP-June-2024-FullReport

Download growth data:   https://bit.ly/GEP-June-2024-Data

Download charts: https://bit.ly/GEP-June-2024-Charts

Regional Outlooks:

East Asia and Pacific:  Growth is expected to decelerate to 4.8% in 2024 and to 4.2% in 2025. For more, see  regional overview.

Europe and Central Asia:  Growth is expected to edge down to 3.0% in 2024 before moderating to 2.9% in 2025. For more, see  regional overview .

Latin America and the Caribbean:  Growth is expected to decline to 1.8% in 2024 before picking up to 2.7% in 2025. For more, see  regional overview .

Middle East and North Africa:  Growth is expected to pick up to 2.8% in 2024 and 4.2% in 2025. For more, see  regional overview.

South Asia:  Growth is expected to slow to 6.2% in 2024 and remain steady at 6.2% in 2025. For more, see regional overview.

Sub-Saharan Africa: Growth is expected to pick up to 3.5% in 2024 and to 3.9% in 2025. For more, see  regional overview.

Website:  www.worldbank.org/gep

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In Defense of Degrowth

• Christopher Marquis

Deconstructing the myth that infinite economic growth could ever be truly sustainable.

There is a critical need to reassess the focus on continuous growth in the global economic system. The concept of “degrowth” challenges the necessity of perpetual economic expansion for human prosperity, suggesting it contradicts ecological sustainability on a planet with finite resources. Despite some resistance, especially from the business sector, the arguments supporting degrowth underscore the inextricable link between economic growth and environmental degradation, proposing a shift toward more sustainable business practices and a reevaluation of the myths surrounding “sustainable growth,” such as the effectiveness of energy transitions and efficiency improvements, which often overlook significant environmental impacts and dependencies on existing energy infrastructures. The article advocates for a societal movement toward reducing consumption and over-production, while embracing values of care and redistribution, challenging traditional market-first ideologies.

In May 2023, the Beyond Growth conference was held at the EU Parliament in Brussels. Headlined by government leaders and academics, its agenda was the urgent need to change the current economic system. The culmination was a manifesto that stated: “Our world is facing an eco-social crisis…driven by the global capitalist system, centered around perpetual economic expansion (growth) and accumulation. Our obsession with economic expansion clashes with finite planetary boundaries.”

• Christopher Marquis is Sinyi Professor of Chinese Management at Cambridge Judge Business School.

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Global Shocks and Monetary Policy Transmission in Emerging Markets

Asian Development Bank Economics Working Paper Series No. 726

31 Pages Posted: 13 May 2024

John Beirne

Asian Development Bank

Nuobu Renzhi

Capital University of Economics and Business

Date Written: May 10, 2024

This paper empirically examines the impact of global shocks on monetary policy transmission in 24 emerging market economies (EMEs), using panel local projections over the period 2000 to 2022. The estimated results show that adverse global shocks, namely a tighter United States monetary policy stance, higher global financial market uncertainty, and global climate change, could dampen the transmission of monetary policy in EMEs. Specifically, the overall responses of industrial production and inflation to monetary policy shocks are more muted compared to the case where the impacts of global factors are isolated. We also study whether economy-specific characteristics across EMEs affect the monetary policy transmission impacts of global shocks. The results suggest that a higher level of financial development can partially offset the dampening effects of global shocks, while a higher degree of capital account openness and trade openness further amplify the impact of global shocks.

Keywords: global shocks, monetary policy transmission, emerging market economies

JEL Classification: E52, F40

Suggested Citation: Suggested Citation

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Nigeria Confronts Its Worst Economic Crisis in a Generation

People in Africa’s most populous nation are suffering as the price of food, fuel and medicine has skyrocketed out of reach for many.

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By Ruth Maclean and Ismail Auwal

Photographs by Taiwo Aina

Reporting from Kano, Nigeria’s second-largest city

Nigeria is facing its worst economic crisis in decades, with skyrocketing inflation, a national currency in free-fall and millions of people struggling to buy food. Only two years ago Africa’s biggest economy, Nigeria is projected to drop to fourth place this year.

The pain is widespread. Unions strike to protest salaries of around $20 a month. People die in stampedes, desperate for free sacks of rice. Hospitals are overrun with women wracked by spasms from calcium deficiencies.

The crisis is largely believed to be rooted in two major changes implemented by a president elected 15 months ago : the partial removal of fuel subsidies and the floating of the currency, which together have caused major price rises.

A nation of entrepreneurs, Nigeria’s more than 200 million citizens are skilled at managing in tough circumstances, without the services states usually provide. They generate their own electricity and source their own water. They take up arms and defend their communities when the armed forces cannot. They negotiate with kidnappers when family members are abducted.

But right now, their resourcefulness is being stretched to the limit.

No Money for Milk

On a recent morning in a corner of the biggest emergency room in northern Nigeria, three women were convulsing in painful spasms, unable to speak. Each year, the E.R. at Murtala Muhammed Specialist Hospital in Kano, Nigeria’s second-largest city, received one or two cases of hypocalcemia caused by malnutrition, said Salisu Garba, a kindly health worker who hurried from bed to bed, ward to ward.

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